Indonesia economy takes off with Jakarta - Singapore air route

Ben Bland

Wednesday, 18 Sep 2013 | 9:31 PM ETFinancial Times

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Although Indonesia has been hit hard by the global sell-off in emerging markets in recent weeks, no one has told passengers on the more than 40 daily flights from Jakarta to Singapore, which has become the world's fastest-growing major international air route.

The number of available seats jumped by 24 percent in the past year, according to the Center for Aviation, a market research company, after the Indonesia and Singapore governments raised a cap on flights between the two countries earlier this year.

With 130,000 return seats a week by November, Jakarta-Singapore will be the second biggest international route after Hong Kong-Taiwan and ahead of Hong-Kong-Shanghai, Dubai-Doha and New York JFK-London Heathrow.

The rapid growth of air travel between Singapore and Jakarta highlights the resilience of the Indonesian economy but also its constraints, with many Indonesians travelling to their wealthy neighbor to get access to international standard healthcare, reliable onward travel connections and discreet wealth management services.

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Indonesia's economic growth has been driven by a fast-expanding middle class but investment in infrastructure, education and health has lagged behind, casting doubt on the sustainability of its development model. Bank Indonesia last week downgraded the country's gross domestic product forecast for 2013 to 5.5-5.9 percent, blaming slowing household spending and corporate investment.

"This is catch-up growth because the market was capped before," said Brendan Sobie, an analyst for the Center for Aviation in Singapore. "Indonesia is growing fast and Singapore is well positioned to tap this as a transit hub for Indonesians and an attractive destination for business and leisure."

With the cap on flights between Indonesia and Singapore lifted by 50 percent, Mr Sobie expects the Jakarta-Singapore route soon to reach the new limit, growing by another 25 percent in the next 12 months.

Tens of thousands of wealthy Indonesians have properties and businesses in Singapore, which is home to at least 70 Indonesians with net assets of more than $30 million, according to a report from UBS and the research company Wealth-X.

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Increased competition has driven down fares, with return tickets on low cost operators like Lion Air or AirAsia readily available for as little as Rp 800,000 ($72). That has opened up the market to millions of Indonesians who could never previously afford international air travel.

"It's more expensive for Jakartans to fly to Medan [Indonesia's fourth-biggest city] than Singapore," said Dharmadi, the chief executive of AirAsia's Indonesian airline. "Indonesians account for 70-80 percent of the passengers travelling to and from Singapore."

With so many daily flights, many Indonesians find the 90-minute hop to Singapore's efficient Changi airport easier and quicker than driving through the traffic jams to Jakarta's ageing, overcapacity and badly-connected Sukarno-Hatta airport.

"Singapore is great, especially for women who are shopaholics," said Maria Yudi, a manager at a Jakarta-based paint company who travels to the city-state every three months. "From Lanvin handbags to H&M, you can find everything in one location and it's not far from one mall to another. Plus, the ambiance is really good, unlike in Jakarta where you cannot walk around."